VIEW: ANZ: RBA Statement Drops Date From Final Paragraph

ANZ note that “the change in the RBA Board’s December post-meeting statement that is likely to attract the most attention is the dropping of any specific date reference from the final paragraph.”

• “The Board’s ‘action plan’ for the cash rate is now:”
• “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range. This will require the labour market to be tight enough to generate wages growth that is materially higher than it is currently. This is likely to take some time and the Board is prepared to be patient.“
• “In contrast, the final sentence in the November statement ended with the following: “with the central forecast being for underlying inflation to be no higher than 2½ per cent at the end of 2023 and for only a gradual increase in wages.””
• “The fact a specific reference to 2023 is no longer in the final paragraph seems, at face value, to be significant. Though this reference now appears earlier and in a slightly different form, rather than being dropped altogether. Specifically:”
• “A further, but only gradual, pick-up in underlying inflation is expected. The central forecast is for underlying inflation to reach 2½ per cent over 2023.”
• “So the forecasts haven’t changed. And when RBA Governor Lowe next speaks about the outlook we expect he will still say that the conditions for an increase in the cash rate are unlikely to be met until late 2023 or early 2024. Still, by removing the specific date reference from the final paragraph the RBA is giving itself some easier optionality if the outlook changes. At the margin, this is important and is a tacit acknowledgment that things can change.”